TaxTMI 
TaxTMI 
2016 (4) TMI 1201
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....tration and other similar services to its parent company. The assessee company also provided various back office services in the nature of IT support services, transaction processing and data processing services to its associated enterprises. 3. During the year under consideration the assessee company had entered into following international transactions: S. No. Nature of Transaction Method used By assessee Amount 1. Payment of royalty TNMM 7,20,41,545 2. Import of books TNMM 1,23,30,355 3. Export of books TNMM 61,42,016 4. Receipt of royalty TNMM 15,42,563 5. Provision of IT Support Services TNMM 6,31,97,593 6. Reimbursement of expenses to & from AEs At cost 1,77,14,406 7. Reimbursement of expenses from AEs 8. Reimbursement of server expenses At cost 9,68,339 Total 17,48,01,359 4. The assessee used TNM method with operating profit over the total cost as the PLI for TP analysis. 5. Ld. TPO noticed that the results as submitted by the taxpayer in the segments of software and software activities were as under: Particulars  ....
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...., ld. TPO finally selected following comparables, the average margin of which was 20.15%. S. No. Name of the Company OP/TC(%) 1. Goldstone Technologies Ltd. 26.64 2. Mindtree Ltd. (seg) 17.51 3. Quintegra Solutions Ltd. 21.48 4. Softsol India Ltd. 14.95 Average 20.15 10. He, accordingly, computed the ALP and corresponding adjustments as under: Operating Cost 5,74,52,357 OP/TC 20.15% Margin 1,15,76,650 Arm's Length Price 6,90,29,007 Price charged by the assessee 6,31,97,593 Difference 58,31,414 % of difference with the International Transaction 9.23% 11. Ld. TPO denied the working capital adjustment sought for by assessee. 12. Before ld. DRP the assessee had taken various objections, after considering which, ld. DRP confirmed the findings of ld. TPO and further enhanced the margin in respect of Softsol India Ltd. to 25.58% as against 14.95% adopted by ld. TPO. Being aggrieved the assessee is in appeal before us and has taken following grounds of appeal: "On the facts and circumstances of the case and in law, the learned Assessing Officer ....
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....ed AO/TPO has erred by passing an order under section 92CA(3) which has computational error in the margin of certain comparable companies used in determination of ALP. 8. the learned AO/TPO has erred by not making appropriate adjustments to account for differences in working capital employed by the Appellant vis-a-vis the com parables. 9. the learned AO/TPO has erred by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the com parables. 10. the learned AO/TPO has erred in not providing the benefit of the arm's length range as provided under proviso to Section 92C of Act for the purposes of computing the ALP under section 92F of the Act. 11. the learned AO has erred while giving credit of the taxes paid and computing the interest payable under section 2348 of the Act." 13. Ld. counsel for the assessee submitted that primarily there are two issues - first being working capital adjustment denied to assessee and second regarding exclusion of certain comparables and inclusion of certain comparables including the wrong computation of margins by ld. DRP in regard to Softsol India Ltd. 14.....
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....ry debtors are available. Ld. counsel referred to page 237 of the PB wherein the segmental details in regard to IT services and R&D services have been given. He referred to page 238 of the PB, wherein the working submitted before ld. TPO in regard to working capital adjustment is given to demonstrate that all the relevant details were furnished before TPO. He referred to page 165 of the PB, wherein the TPO's order for AY 2007-08 is contained to demonstrate that necessary adjustment had been allowed in regard to capital working adjustment. He further pointed out that in AY 2009-10 the ld. DRP in para 9.4 of its directions has, inter alia, observed that since the balances of inventories, trade debtors/ receivables and trade creditors/ payables were not available on daily basis for the comparables, therefore TPO was directed to take following into consideration: "a) compute the average of opening and closing balances of lnventories, trade debtors/receivables, trade creditors/payables of both the tested party and the com parables b) work out the net working capital ratio (in percentage) after dividing the net working capital by operating cost/sales or such denominator....
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.... this comparable was functionally not comparable to the tested party as it had employee compensation less than 25% and hence it failed employee cost filter. 23. Before ld. DRP the assessee pointed out that the employee cost (cost of services) as percentage of total revenue of the company was 75.55%. Ld. DRP did not accept the assessee's contention that cost of services should be taken as remuneration to employees by observing that in the annual report of the company there was no expense such as 'salary cost' or 'remuneration to employees' in its P&L A/c. Ld. DRP observed that assessee was drawing conclusions on the basis of unsubstantiated presumptions and whenever there is doubt about the functional comparability, it is better to drop such comparable rather than indulging in presumptions. Ld. DRP did not accept the assessee's contention that some companies may include employee cost as a separate item in their financial statements while others may aggregate it under the expenses such as administrative expenses, sales and marketing expenses etc. Ld. DRP observed that employee cost is always shown as a different line item in the profit and loss account. 24. Ld. counsel submitte....
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....where cited any instances of functional dissimilarity of this company. On the contrary he submitted that as is evident from the P&L A/c of this comparable as contained at page 275 of the PB, the company has derived income from software services. He further pointed out that in the case of Ameriprise India Pvt. Ltd. ITA no. 2010/Del/2014, it has been held that the turnover filter is not an appropriate filter. Further, he pointed out that this company is functionally similar to the assessee. 29. We have considered the submissions of both the parties. We find that ld. DRP has confirmed the findings of ld. TPO solely on the ground that sales were less than Rs. 1 crore. No adverse comments have been made on the functional analysis by both the lower revenue authorities. Under such circumstances in view of the decision of Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd. (supra), this comparable has to be included in the list of comparables selected by ld. TPO. We direct accordingly. 30. As regards Softsol India Ltd. the main contention of ld. counsel for the assessee is that since no opportunity was provided by ld. DRP while increasing the ma....